856D.6176/213: Telegram
The Ambassador in Great Britain (Bingham) to the Secretary of State
158. Department’s 140, April 7, noon. It seems advisable to telegraph in full a Foreign Office letter of April 9th “to confirm the answers given to the questions enumerated at the meeting held on April 4th” (Embassy’s 151, April 4, 6 p.m.). The character of that discussion was such that I do not think that any useful purpose will be served by further oral observations unless accompanied by a written statement. The answer to this letter could conveniently embody the appropriate points of your 140, April 7, noon, and any other comments desired. An answer to my aide-mémoire of April 3rd27 is promised “in due course”. The Hague is being kept currently informed.
“Nearly all the questions are concerned with the anxiety of the United States Government that the price of rubber may be unduly enhanced. Before dealing with these questions in detail it will be convenient to explain that the scheme itself is, in our view, the best guarantee against artificially high prices. It provides for the close adjustment of supply to demand (once excessive stocks have been disposed of, over the reasonable period). In such circumstances, and with the price fixed by a free market working under this adjustment of supply to demand, it is difficult to see how artificially high prices can be attained or held. The scheme will be under the control of a committee appointed by the governments concerned and composed, therefore, of responsible individuals. The voting power will almost certainly rest in the hands of government officials. It contains no machinery whatever for the fixing or holding of any particular price, but is designed simply to adjust production to consumption and at the same time to get rid of the excessive stocks of rubber which exercise such a depressing effect on the market. The producers have no interest in causing an artificial scarcity; on the contrary, their aim must be to sell as much rubber as they can, at any reasonably remunerative price. Indeed, the real problem will probably be to induce the producers to concur in measures designed to cut down world stocks sufficiently.
[Page 648]The difficulties which would inevitably result from increased native production in the case of an excessive (or even moderately high) price being reached have already been explained in our official note numbered W 2742/89/29 of 23rd March.28 It seems therefore that the United States have nothing to fear from excessive prices, while they will reap all the advantages of that price stability, which should be secured by the operation of the scheme, when stocks have been reduced to normal dimensions.
And now to turn to the detailed points in your questions which are not dealt with above:
- 1.
- The price “reasonably remunerative to efficient producers” was mentioned in the explanatory preamble as being the ultimate objective of the scheme. Actually, as explained above, that objective has to be attained indirectly; there is no machinery in the scheme for arriving at any particular price nor is any particular price mentioned.
- 2.
- The maintenance of a stable price will be secured by the accurate adjustment of supply to demand, once stocks are at normal; and minor fluctuations round this stable price level will be damped down by those provisions of the plan which allow both dealers and producers to hold stocks of a considerable size, the former up to a total of one-eighth of the annual output, and the latter something like 6 weeks—or possibly 2 months—current production.
- 3.
- The rapid variation of export quotas will be insured by the action of the Rubber Regulation Committee. Committees of this kind usually meet once a month, but there is, of course, no reason why they should not meet more frequently, if necessary. Unlike the members of the Tin Committee, the members of the Rubber Committee will be plenipotentiaries, and will accordingly be able to increase export quotas without appreciable delay. It is also not improbable that some sort of buffer pool may be set up on the lines of the proposed tin buffer pool. This is, however, for the moment, only speculation since such a pool would have to be decided upon by the Rubber Committee, a body which has not yet been constituted.
- 4.
- The question of safeguards against extreme price movements has already been dealt with above. The dangers of increased native production at even moderately high prices, the desire of producers to reduce costs by producing as much as they reasonably can, and the existence of considerable stocks and possibly of a pool render these movements highly unlikely.
- 5.
- The reason for saying that the denomination of a maximum price would foster speculation is that, as is well known, a maximum price always tends to become a minimum price; speculators would buy at low levels in the hope that the maximum price would be attained; and the mere fixation of a maximum price would evoke constant agitation and pressure, political and otherwise, on the part of powerful producing interests, to force the adoption of measures designed to result in that maximum price being reached and held.
- 6.
- The existence of adequate stocks and the possible formation of a pool should ensure that reserve supplies are immediately available to [Page 649] the market if and when signs of undue shortage of supply or undesirable wide price movements occur.
- 7.
- The scheme provides for the setting up of a panel of three representatives of consumers’ interests who will, from time to time, tender advice to the committee. This panel must be formed within 1 month of the entering into operation of the scheme. Although it has not yet been decided how exactly these representatives will be selected, it is probable that they will consist of one United States member, one Continental member and one English member and the first and third will presumably be selected in consultation with the governments concerned.
- 8.
- Voluminous statistics with regard to rubber in all its aspects are already in existence, in addition to this, the Rubber Committee will almost certainly arrange to publish the fullest possible information regarding the statistical side of its work.”
Copy mailed to The Hague.